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Weekly FX Update - 20th June 2011

Written by Sam Coxhead on June 20th, 2011.      0 comments

5:48 PM (NZT)

Currency Commentaries:

Click to access our currency pair reports:  
NZD/USD                                      AUD/USD                                    GBP/USD
NZD/AUD (AUD/NZD)                    AUD/GBP (GBPAUD)                    GBP/EUR (EUR/GBP)
NZD/GBP (GBP/NZD)                    AUD/EUR (EUR/AUD)                   GBP/RAND

Major Announcements last week:

  • Chinese Inflation 5.5% as expected
  • Chinese Industrial Production 13.3% vs 13.1% expected
  • UK Inflation 4.5% as expected
  • US Retail Sales (core) +.3% as expected
  • NZ Retails Sales +.7% as expected
  • UK Unemployment Claims 19.6k vs 7.1k expected
  • US Inflation +.3% vs +.2% expected
  • UK retail Sales -1.4% vs -.5% expected
  • European Inflation +2.7% as expected
  • US Building Permits and Housing Starts higher than expected
  • US Weekly Jobless Claims 414k vs 421k expected
  • US Philadelphia Fed manufacturing Index -7.7 vs +7.1 expected
  • BoJ Monetary Policy Meeting minutes reveal further accommodation maybe needed at some stage
US UoM Consumer Sentiment Survey 71.8 vs 74.2 expected

Market Overview:

The global financial markets remained nervous throughout last week. Periods of risk aversion have been common. The equity and commodity markets have seen continued weakness, with growth assets leading the way. Of note is the move lower in oil, which is economically healthy if it can be sustained, and should help stablise the US dollar. The concerns over the European debt situation remain high. The prospect of a Greek default remains a primary concern, although a IMF commitment of funds in the short term has allayed these fears for the time being. Also slightly easing fears has been Germany backing down on its call for private investors to accept a reduced amount of principle to be repaid. Economic growth data has continued its trend of softness for the western world. This was evidenced by the IMF revision of the US growth forecast down from 2.8 for 2011,to 2.5%.
The Australian dollar had a mixed performance last week, in the absence of top tier economic data. Interestingly, the chances of a cash rate hike in the coming months have been all but discounted now, and this in the face of Reserve Bank of Australia (RBA) Governor Stevens comments stating that it was a matter of time before we see a lift in the cash rate.  Easing European debt fears saw the AUD finish the week broadly unchanged and this week we have only RBA Monetary Policy Meeting minutes as a focus, on Tuesday. Expect the AUD to see movement in line with general market risk appetite(i.e. if risk appetite is strong, AUD will appreciate, if appetite is weak, AUD will languish or weaken).
The New Zealand dollar recovered from the weakness it saw after last Mondays large aftershocks in Christchurch, to trade in line with general market appetite for risk. The retail sales number was a bright spot for the week, albeit it a positive number coming from a very low base. The likelihood of a December rise in the cash rate reduced a little after Monday’s shakes, with a current 40% chance of a December hike, according to the current interest rate market levels. New Zealand current account data due on Wednesday will be watched, but expect little effect. In the absence of any other domestic data, expect this week’s price action to be driven by offshore  markets.
The economic data in the US remains mixed at best. The reduced IMF growth forecast to 2.5% for 2011 is not surprising given the soft nature of the indicators of late. The lower oil price should see the US dollar stablise if it can be sustained. The Congressional debt cap negotiations will remain closely watched, and an early agreement would be US dollar positive. Whilst the manufacturing numbers last week were not positive, the pickup in the housing numbers are a positive sign. The Federal Reserve Open Market Committee  statement and accompanying press conference on Wednesday will be closely watched, as market conjecture on any further easing policies remains prevalent.
Europe debt situation remains the focus of global markets and will likely remain so for some time. The prospect of a Lehman type credit event in the advent of a Greek debt default remains the primary concern. Various meetings of high ranking European finance officials remain on going, and this will ensure the “noise” surrounding this issue in the market remains high. The apparent IMF commitment to pay the next payment of the next tranche the current Greek bailout program should quell fears in the short term, but this remains a significant and ongoing issue. The complexities remain high with civil and political unrest in nations both requiring bailout funds, and those contributing them. There is potential for the EURO to appreciate as the current Greek funding problem is passed. Credit rating agencies remain focused on the wider debt issues, with various Irish, Portuguese, Italian and Greek entities given downgrades or placed on negative watch last week.
In the UK economic data remains soft, with the housing and retail sales sectors indicating households remain under pressure. Inflationary pressures remain with the 4.5% number coming in right on expectations. With conflicting comments coming from the Bank of England (BoE) Monetary Policy Committee members, the latest BoE meeting minutes on Wednesday will be closely watched. In the meantime the pound sterling remains in its wider ranges against almost all currency pairs.
In Canada the lack of domestic data saw the CAD being led by offshore moves. This will continue this week for the most part, with just retail sales to focus on with an expectation of .5% for the month.
In Japan the economy remains under pressure as the slow stablising of the economy gets underway after the earthquake and tsunami. The Bank of Japan has maintained its easy monetary policy and indicated than it will increase its loan scheme to growth industries. This policy gave wind to some equity gains on the Nikkei in the face of generally weaker markets.
In South Africa last week a surprising jump in retail sales caught the market by surprise. The 9.8% increase against an expectation of 5.0% shows the consumer is relatively upbeat and will bring the South African Reserve Bank into play if the trend continues. This week sees employment numbers on Tuesday and inflation numbers on Wednesday. Better than expected numbers will add to the focus for a hike in the cash rate.